Citigroup Heightens Transparency Amid PFGBest Controversy

Citigroup Inc. (NYSE:C) increased its level of transparency by introducing “City Velocity”, a web tool which enables customers to track their derivatives accounts, and see how the company handles its clients’ money and the assets supporting their trades.

The company’s initiative serves a response to the call for transparency by regulators in the midst of the controversial accounting irregularities at PFGBest. The futures trading industry was shaken by reports that the $220 million assets in customer funds have gone missing, prompting the National Future Association to take immediate action and freeze the accounts of PFGBest, which halted company’s business operations.

Christopher Perkins, the global head of OTC clearing at Citigroup Inc. said that the introduction of the new platform would provide a new level of disclosures to customers that were not provided to them before. He explained that over that past few months clients expressed an increasing concern over how segregation works. According to him, “The only way to give clients confidence is to open up the hood and let them see how we segregate customer funds.”

The law allows Futures Commission Merchants (FCM) to put customer’s money into one account. FCM generally does not provide their clients with information as to where and how the money was invested. Customers only receive information regarding the value of collateral taken. With City Velocity, investors will get a daily snapshot of their segregated balances of their investments.

In addition, the new platform will also provide Citi customers with the ability to track how the company manages and distributes their money under the “omnibus” pool. They will be able to observe the process as to how their funds are being re-invested, breakdown of collateral and client excess collateral. Investors will also know which custody banks safeguard the money.

Citigroup acts as agent too FCM on futures trades and off- exchange derivatives called “swaps”, that are required by regulations to move into independent clearinghouses. The companies charge fees to its clients for its services as FCM.

Meanwhile, Gary Gensler, chairman of the Commodity Futures Trading Commission informed investors that the agency is evaluating a series of recommendations that would be implemented to ensure the protection of customer funds. In his speech Gensler said, “The CFTC staff is working on recommendations for enhanced internal controls and transparency regarding futures commission merchants handling such funds.”

Commenting on Gensler’s statement, James Wallin, Senior Vice-president of Fixed Income for AllianceBernstein Holding LP (NYSE:AB) says that the industry needs to re-assure customers that their money is safe and it will be returned to them. He pointed out that the most important tool FCM can provide to customers the transparency into the collateral safe-keeping process.

At present, customers trading U.S. futures are still relying on monthly regulatory reports, which provides only limited financial information on how FCMs manage their funds, and they are only available for futures positions.